What an incredible rally in the EURUSD we've seen on June 5 and 6. On Tuesday, June 4, after Ben Bernanke said the Fed "is watching the dollar," the buck gained close to 200 pips against the euro. Wednesday's trading was very quiet, and it did seem like tables were indeed turning for the dollar. But then on Thursday…
At 8:30 AM on Thursday, June 5, forex traders forgot all about the Fed's remarks and started to sell the dollar like there is no tomorrow. The EURUSD rally continued almost non-stop into the weekend, pushing the EURUSD some 400 pips higher and erasing all of the dollar's earlier gains.
No doubt about it, that incredibly strong move caught a lot of currency traders by surprise. Could you have seen it coming, though? Not if you were looking strictly at the dollar's and euro's fundamentals – they were quite confusing and contradicting this week.
On the other hand, if you were using technical analysis, you may have had a early warning about the rally. Here are a couple of forecasts Elliott Wave International's Currency Specialty Service subscribers got this week: First one before the EURUSD rally started, and the second – as it was getting under way:
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[Thursday, June 5, 07:34 ET/11:34 GMT]
[EURUSD] Last Price: 1.5393
[Lower before reacting higher] Continue to look for a fifth of a fifth wave pattern to unfold in a possible diagonal shape for a little while longer, as long as 1.5454 holds, before a more sustainable upward reaction can develop.
The EURUSD did indeed dip lower on the morning of June 5 before staging its breathtaking rally. And on the evening of June 5, EWI's Currency Specialty Service posted this daily forecast and chart (some labels have been erased for this publication):
Update For: Friday
Posted On: Thu, 5 Jun 2008 18:57:00 GMT
[EURUSD] Last Price: 1.5594
[Bottoming, Turning higher] Given the reversal from just below 1.5400, we are staying with the bullish outlook. Having come so close to key support at 1.5287 and then turning with such force, this is not the time to abandon an outlook that has not been invalidated.
As the Currency Specialty Service editor Jim Martens writes in his latest, June 6, Market Insight, "…there's a lot of talk [about the dollar in the press right now]. But little substance that would explain recent dollar moves – and in the end, the dollar has really gone nowhere. So we're left with looking at the price pattern."
New Video Forex Forecast. Every Friday, EWI's Senior Currency Strategist Jim Martens records a new video forecast for subscribers. Watch the latest, June 6, video update now inside Currency Specialty Service.